What constitutes proof of theft of trade secrets?

July 11, 2013 / By Robert Wood

In the oil and gas industry, certain well construction costs are known as “complex services.” Traditionally, oil and gas companies have used paper records to track and pay costs. Company A developed software that allowed oil companies to plan, procure and pay for complex services online. Company A entered into an agreement with a software company, Company B, to integrate its complex services software with Company B’s accounting software. As part of the agreement, Company A provided its source code to Company B.

To promote its software, Company A entered into a number of marketing agreements with a consulting firm. Company A also participated in several pilot projects with oil companies. Some of the pilot projects involved the consulting firm. Company A shared source code and access to its technology with the consulting firm and the oil companies, subject to confidentiality agreements. For one particular pilot, Pilot 1, the oil company hosted a confidential online portal that allowed Company A to share files and information with the employees of the oil company. Later, the oil company sponsored a new pilot and instructed the consulting firm to select a software provider. Company A and Company B pitched their integrated software to the consulting firm. Without notifying Company A, the consulting firm and Company B began developing the complex services component of the software for the oil company. The consulting firm and Company B apparently accessed Company A’s technology that had been uploaded to the confidential portal for Pilot 1.

Company A sued the oil company, the consulting firm and Company B for misappropriation of trade secrets. Company A’s suit against the consulting firm proceeded to trial. The jury returned a verdict for Company A. The consulting firm appealed.

On appeal, the consulting firm argued that Company A had not presented sufficient evidence that its technology was “secret.” The court found that Company A was the only company offering complex services software from 2000 to 2005. Company A guarded the secrecy of its technology by placing it behind a firewall and sharing it subject to a confidentiality agreement. Company A demonstrated that its technology had value because other companies partnered with Company A and third-party investors valued Company A at more than $27 million. The consulting firm specifically argued that Company A’s technology was not “secret” because Company A disclosed it to the public in patents and patent applications. A patent destroys the secrecy necessary to maintain a trade secret only when the patent and the trade secret both cover the same subject matter. Neither party introduced Company A’s patents into evidence. Furthermore, there was no authority to impose a burden on Company A to prove that the patents did not cover the same subject matter. Therefore, the court held that Company A had presented sufficient evidence that its technology contained trade secrets.

The consulting firm also argued that Company A had not presented sufficient evidence that the consulting firm had acquired the trade secrets improperly. The court found that Company A had entered into six confidential agreements with the consulting firm and through those agreements, the consulting firm had access to Company A’s trade secrets. The consulting firm also had access to Company A’s trade secrets uploaded to the confidential portal. In addition, an email from the consulting firm referenced “harvesting IP” from Company A. The court held that this evidence supported a legitimate inference that the consulting firm acquired Company A’s trade secrets.

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About the Author

Robert Wood has been a Texas trial lawyer since 1993. During that time, he has represented small, mid-sized, and Fortune 100 companies in business and employment litigation matters all over Texas and the United States. He has also advised and represented hundreds of individuals in employment litigation matters. Read more about Robert Wood